HJ Hein F4Q10 (Qtr End 04/28/2010) Earnings Call Transcript

HJ Hein F4Q10 (Qtr End 04/28/2010) Earnings Call Transcript
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HJ Hein (HNZ)

F4Q10 (Qtr End 04/28/2010) Earnings Call

May 27, 2010 8:00 am ET

Executives

Margaret Nollen - Senior Vice President of Investor Relations

Karen Alber - Chief Information Officer, Senior Vice President, Global Program Management Officer and Office of the Chairman

Bob Ostryniec - Chief Supply Chain Officer

Arthur Winkleblack - Chief Financial Officer and Executive Vice President

William Johnson - Executive Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Presentation

Margaret Nollen

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Good morning. I'm Meg Nollen, Senior Vice President, Investor Relation for the H.J. Heinz Co., and I'd like to welcome everyone to our 2010 Analyst and Investor Day here in Pittsburgh.

For those of you attending today's session, you're in for quite a treat as you're going to meet Heinz leadership from around the world. For those of you who are unable to travel to Pittsburgh today, our webcast is also being simultaneously videocast. This is not your typical Analyst Day, and I simply couldn't let you miss out on the experience.

For those of you on a simultaneously listen-only call or webcast, the presentation will be made available by section throughout the day on the Investor Relations page of our website at www.heinz.com, as well as Thomson StreetEvents (sic) Thomson Reuters StreetEvents. Start pages including five-year financial and statistical summaries and Reg G reconciliations are also available on the front page of the IR section of the website.

Note that our P&L has been updated for the fourth quarter, and the balance sheet and cash flows will be updated in June, pending the filing of our 10-K.

We have a great day planned for you as we elaborate on the familiar Heinz's four-pillar strategy, grow the core portfolio, accelerate growth in Emerging Markets, strengthen and leverage global scale and make talent a competitive advantage.

The agenda for the day is in front of your folder and also on the screen. We'll start with the strategic and financial overview from Bill and Art, and then we'll detail productivity initiatives and deleveraging global scale with Bob Ostryniec and Karen Alber, followed by a Q&A session.

We'll take a break and then begin the regional reviews at 9:45. We will hear from each of our regional presidents. We'll give you a chance to focus your questions on these guys, and then begin our Developed Markets growth section promptly at 11. You'll hear from several of our key Developed Markets team, and then have a chance to ask them questions, ending at 12:30. We'll take a one-hour break for lunch and begin Emerging Markets promptly at 1:30.

We have several of our key Emerging Markets team from around the Heinz world and you'll get a chance to ask them questions for about 15 minutes. We'll then take a quick break and begin our final section at 3:00 PM, where we'll be showcasing some of our top Global Infant/Nutrition talent. And yes, we have even brought C.K. Lee all the way from China. Steve Clark will tell you about our talent strategy, and then Bill will wrap up the day, and we'll have one last round of Q&A. Sound Good? All right, let's get started.

As a reminder, questions will only be taken from those attending our presentation today here in Pittsburgh. I'd like to ask those of you in the audience, please turn off and not just mute your cell phones and Blackberrys to avoid interference from those listening in today. As we begin, let me refer you to the forward-looking statement currently displayed.

To summarize, during our presentation, we may make predicted statements about our business that are intended to clarify results for your understanding. We ask you to refer to our April 29, Form 10-K as well as our press release today, which list some of the factors that could cause actual results to differ materially from those in our predictions. Heinz undertakes no obligation to update or revise any forward-looking statement, whether as the results of new information, future events or otherwise, except as required by securities law.

We may also use non-GAAP financial measures in our presentation, as the company believes such measures allow for consistent period-to-period comparison of the business. The most directly comparable GAAP financial measures and reconciliations of these non-GAAP measures are available in the company's earnings release and at the very back of your presentation today, also on the website for our callers.

So now, the day will begin. I'd like to turn it over to Bill Johnson, Chairman, President and CEO of H.J. Heinz. Bill?

William Johnson

Thank you, Meg. Good morning, and welcome to our 2010 Investor and Analyst Conference. One change on the agenda, we'll do the Q&A right after the Infant/Nutrition section. So those of you who'd like to get out of here and catch the planes, without listening to our people strategy and me, are able to do so.

Today, more than 20 executives from our senior management team will share their insights about Heinz's businesses and brands around the world and our plans to drive continued growth in fiscal 2011. Many of you know that I consider the Managing Director position the most important in our company, which is why you will hear from so many of them throughout the day. My purpose today is to briefly recap our outstanding performance in fiscal 2010, discuss the outlook for 2011, which commenced on April 29, and provide an overview of our global strategy to drive continued sales, profit and cash flow growth.

My message today is unmistakably clear. We delivered very strong result in a challenging and volatile global environment in fiscal 2010. And with our proven strategy, brands and team, we plan to do it again in 2011.

Fiscal 2010, as we announced this morning, was another excellent year with record sales of $10.5 billion, organic sales growth of more than 15% in Emerging Markets, over 3% in our top 15 brands and more than 2% over all. We had a 50 basis point improvement in gross profit margin reflecting increased pricing and higher productivity, strong earnings per share of $2.87 from continuing operations despite the unfavorable impact of currency and higher commodity cost, and solid growth and are already a top-tier return on invested capital.

Obviously, we're pretty pleased with our results, which included a solid finish to the year as Art will detail. We achieved profitable volume growth in the fourth quarter while investing heavily in marketing to drive growth and the support to launch of several new innovations. Additionally, we also underwrote several new productivity initiative to further improve margins and further simplify the supply chain going forward.

Overall, fourth quarter sales grew 8%. Net income from continuing operations increased around 8% with a reported EPS of $0.60. And we achieved our 20th consecutive quarter of organic sales growth. In simple math, that's five straight years of organic sales growth, which we plan on extending in fiscal 2011 and beyond.

Importantly, we also generated record operating free cash flow of almost $1.1 billion, while investing significantly in our pension plans and our businesses. Strong cash flow has become a true Heinz hallmark and it provides us with great balance sheet flexibility.

Additionally, it supports continued dividend growth. And in that context, I am pleased to announce our plans to increase the annualized dividend to $1.80 per share, a more than 7% increase effective with the July payment. With this increase, our dividend has grown almost 67% over the last few years. And in that time span, Heinz has returned more than $3 billion to shareholders through dividend payments.

Our excellent fiscal 2010 performance reflects solid execution by our business unit teams. In a tough economy, we achieved constant currency sales growth within our guidance of 4% to 6%, increase our marketing spend by more than 25% to strengthen our brand equity and drive sustainable growth. And we delivered EPS from continuing operations that exceeded the top end of our revised range of $2.82 to $2.85 after raising the outlook twice during the year. Our increased profit reflected both excellent operational performance and improved currency translation.

From my perspective, there were three notable highlights during the year. Number one, Emerging Markets clearly established themselves as our most powerful growth engine now and well into the future of this company. These markets generated virtually all of the company's organic sales growth for the year and 30% of our total reported sales growth, despite the unfavorable impact of the devaluation in Venezuela. The momentum in the fourth quarter was particularly encouraging on organic sales growth of around 21%. I will have much more to say about our Emerging Markets growth strategy in a few minutes. And you'll hear from many of our Emerging Markets leaders throughout the day.

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